Question 21

marodriguezmarodriguez
edited September 2024 in EXAM: 2019-Spring

The solution shows that for part a:
-Unpaid losses as well as Unpaid LAE come from page 3 of annual statement
-Unpaid Losses D&A as well as Unpaid LAE D&A come from Schedule P

A few questions on this:
i) Why don't they match? Are the unpaid L&LAE from schedule P Gross while unpaid L&LAE from page 3 annual statment are net?
ii) Where specifically is the data from schedule P pulled or how is it arrived at? Is it the Schedule P-Part 1-Summary columns 35 and 36 totals?

Comments

  • grahamgraham

    (i)

    • Page 3 of the Annual Statement reports net figures, meaning these numbers reflect losses and LAE after reinsurance has been applied.
    • Schedule P, Part 1, provides data both on a gross (direct + assumed) and net of reinsurance basis, but the specific values you are referring to in the exam must represent gross amounts, which include both direct and assumed losses before reinsurance recoveries are applied​.
    • So, this difference in reporting bases is why the values don't match. Net values on Page 3 are after the effects of reinsurance, whereas gross values from Schedule P include direct and assumed losses.

    (ii)

    The unpaid loss and unpaid LAE figures come from Schedule P-Part 1-Summary, and specifically the net columns, which are columns 35 and 36.

    • Column 35: Net balance sheet loss reserves after discount
    • Column 36: Net balance sheet LAE reserves after discount
  • amberxmcamberxmc

    can i include Reinsurance payable on paid losses and loss adjustment expenses of 160 and Unearned premiums of 475 in my answer?

  • grahamgraham

    No, I don't believe that would accepted:

    • Exhibit A of the Statement of Actuarial Opinion (SAO) only includes reserve items, such as loss reserves, loss adjustment expense reserves, and other similar reserve-related categories. The common mistake of including incurred values or non-reserve liabilities, like "Reinsurance payable" or "Unearned premiums," is noted in the examiners' report because these items do not belong in Exhibit A, which focuses solely on reserves​.
  • hayjowhayjow

    Okay so Exh A is: carried reserves for items in scope. items in scope are Loss and LAE reserves, uncollectible prem for long duration contracts, and retroactive reinsurance assumed reserves. Since it says there are no long-duration contracts we know not to include the unearned prem. But the reinsurance bit was tougher for me to tell. Would it specifically state "retroactive reinsurance assumed reserves" vs just "reinsurance payable" to indicate whether to include that one?

  • grahamgraham

    Apologies for the delay in responding to your question. We will respond shortly.

  • Staff - SJStaff - SJ

    A common error noted in the Examiner's Report is including items other than reserves. Reinsurance payables are not reserves and therefore should not be included.

    Reinsurance payables are what the reinsurer owes the insurer for claims that have already been paid. Reinsurance reserves would relate more to what's expected to happen in the future.

    You never know how they'll display it on the exam, but I would think it would be more clearly referred to as reinsurance reserves in some way. I think the key here was to recognize that payables =/= reserves.

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